Q2 2023 Amerisourcebergen Corp Earnings Call
CEO and Jim Cleary, Executive Vice President and CFO .
On today's call, we will be discussing non-GAAP financial measures reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at Investor day at Amerisourcebergen Dot com.
We've also posted a slide presentation to accompany today's press release on our Investor website.
During this conference call, we will make forward looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS operating income and income taxes.
We're looking statements are based on management's current expectations and are subject to uncertainty and change.
For a discussion of key risks and assumptions, we refer you to today's press release, and our SEC filings, including our most recent Form 10-K.
Amerisourcebergen assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company you'll have an opportunity to ask questions. After today's remarks by management, we ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour with that I'll turn the call over to Steve.
Thank you Bennett good morning, and good afternoon to everyone on the call.
Today, we will discuss amerisourcebergen fiscal 2023 quarter results.
And how our execution.
Thanks to our strategic imperatives, and thoughtful capital deployment position us to continue delivering long term sustainable growth.
In the second quarter, we delivered strong financial performance with revenue growth of nearly 10% and adjusted EPS growth of 9%.
Our performance reflects our team members focus on execution and ability to deliver differentiated solutions to our customers and partners.
Additionally, we continue to leverage our infrastructure and scale to increase efficiency and a lot of our capabilities to our customers needs. This continued emphasis along with the fundamental strength of our business and balance sheet power, our ability to continue investing internally and externally.
To drive our future growth.
As part of our work to both the productivity and efficiency, we are leveraging a robust infrastructure to align our capabilities to commercial needs and optimize our organizational structure.
Across the company our leaders and team members continue emphasizing collaboration to capitalize on our collective power as we adapt to an ever changing landscape with a focus on preparing for future opportunities and growth while delivering on our goals of today.
Continuously pursuing efficiency is vital in our business and in parallel amerisourcebergen is executing and delivering strong performance.
Fundamentals of our business remains strong as we continue to capitalize on opportunities provided by our pharmaceutical centric strategy and capabilities.
Our results continue to demonstrate the value of our pharmaceutical centric strategy key strategic partnerships leadership in specialty and comprehensive global commercialization services.
Our leadership in specialty distribution is a key differentiator for amerisourcebergen, both with pharma manufacturers and without downstream provider customers.
Through our scale commercial expertise and deep understanding of the challenges providers face we are able to offer a comprehensive range of services, including our GP OS data analytics and technology solutions that help them manage effectively and devote more time to serving their patients.
In addition, leveraging our position at the center of Health care, we facilitate communication and education and knowledge sharing between providers pharma manufacturers and <unk>.
Key thought leaders through our extensive network.
One example of this was our recent ion exchange meeting, which brought together hundreds of our ion GPO members to participate in panel discussions addressing the complexities community oncologist space and provided them with valuable opportunities to connect with fellow physicians and other industry partners.
Community Oncologists are important partners for our business and community K is crucial for efficiency and quality in healthcare as we continue to invest in and enhance our business. We are committed to accelerating our growth and leadership in specialty by advancing oncology focused practice.
<unk> and services and continuing to lead with market leaders.
Most recently, we announced our agreement to invest in one oncology and network of leading community oncologists with 900 affiliated providers across 14 states.
This investment will deepen and enhance our strong ties to community providers and one oncology practice management services are complementary to amerisourcebergen as existing capabilities and inventory management practice analytics and clinical trial support we know one oncology and it's may.
Members well with many of their position serving as advisors to ion and with Amerisourcebergen, having served many of these practices for over two decades.
Future plans for collaboration with one oncology include opportunities for sharing key insights to enhance the value we are able to provide or our community oncology partners as we look to a future where data analytics and value based contracting will play an even greater role in community oncology.
The trusted relationships and legacy we have both within communities support our ultimate goal to create better patient experiences and outcomes across specialty classes and sorts of Kay.
Our commitment to our relationship goes beyond providing high quality dependable services every day.
Also means that we are flexible and agile, helping our partners navigate complexity to provide reliable access to pharmaceuticals.
We invest and innovate to provide our partners with new technologies and resources broadening the scope and scale of our portfolio of capabilities. For example world Courier recently enhanced its white glove customer experience by adding real time location monitoring on all multiyear.
Who's packaging shipments setting a new standard for tracking in the pharmaceutical logistics industry.
The ability to track and monitor the precise location of shipments in transit globally allows us to deliver superior service to our customers proactively anticipate potential risks and ensure the secure and Tom the distribution of products. This.
This capability further expands amerisourcebergen to leadership, and especially logistics and positions us to be the partner of choice for innovative products and development and coming to market such as cell and gene therapies that also requires the ability to monitor temperature and location in <unk>.
Tom.
Cell and gene therapies are an exciting new frontier for healthcare and pharmaceutical innovation and Amerisourcebergen is focused on evolving our solutions to help orchestrate services across the treatment development and patient journey.
In April we announced the launch of our cell and gene therapy integration hub and new platform agnostic system offering cell and gene therapy developers support at every stage of the product lifecycle from clinical trial to specialty logistics services market access strategies and pace.
<unk> support services.
While certainly in its early days, we understand how important it is for Amerisourcebergen to play a vital role in helping to advance innovation and access to these products.
As we continue to invest in our business and differentiate our value proposition, we are applying our intellectual confidence to capture new opportunities for emerging trends and future innovation.
Upstream partners, we support our common goal of accelerating treatment time to market and maximizing product success.
Our partners Big and small we offer a unique comprehensive suite of services that supports customer needs, including deep expertise in specialty pharmaceuticals, and efficient and innovative approach to support products throughout the commercialization journey and our global footprint paid.
With local expertise.
<unk>, the U S and European <unk> and global specialty logistics.
Over the last year, we have detailed how we are well positioned to capture growth opportunities in the pharma services market, particularly with small and midsized biopharma manufacturers, who are more likely to outsource key parts of the clinical development and commercialization process occur.
According to a recent <unk> report these emerging biopharma companies are rapidly gaining share.
Having originated a little over two thirds of new drugs in 2022, while representing two thirds of the innovation pipeline.
Importantly, these companies are increasingly launching products independently upon approval in fact, nearly 70% of drugs originated by emerging biopharmaceutical manufacturers were launched independently in 2020 to.
Our recently closed acquisition of former lakes enhances our portfolio of solutions to support pharma, both large and small as they move through the development process.
We are uniquely positioned to provide key solutions, including Pharmacovigilance regulatory affairs consulting and clinical trial logistics to help accelerate time to market and support ongoing access across geographies.
As these players increasingly manage the entire product lifecycle, our global footprint and comprehensive suite of pre and post commercialization services.
<unk> us to be their partner of choice, we continue to invest partner and bowls to ensure that we have the raw capabilities in place to expand the reach of innovative therapies and transform patient access and support all while positioning our business for future growth.
As a purpose driven organization, our future will be defined by.
Impact on our people the environment and communities in which we live and work around the world.
In February the earthquake that impacted Turkey had a devastating humanitarian impact.
Following the earthquakes, we committed funds to assist in local on the ground support and product donations and the Amerisourcebergen Foundation provided a package of relief funds trough strategic nonprofit partners, who have extensive experience in supporting disaster response efforts.
Our associate assistance fund supported impacted team members based in Turkey by providing resources for shelter immediately following the earthquake assistance to those who are hospitalized and longer term financial assistance for housing and other crucial needs team.
Team members continue to support their colleagues in Turkey, <unk> taken advantage of our Foundation's 221 donation matching program and I'm proud of the work our teams have done to help one another in times of need.
Our work to support access and equity is key to delivering on our purpose of creating healthier futures and we are helping to Boulder community, where everyone can thrive.
All collaborating and engaging with team members partners customers and patients and our communities.
Working together with a shared goal of creating fair in comparable access.
This means working to improve health access and equity and the communities in which our team members live and work.
One such initiative is our pharmacy recruit solution, which is creating a program for community pharmacists to contact potential qualified patients and refer them to clinical trial sites for enrollment.
We hope that this initiative will help reduce representation gaps that can existing clinical trial research by leveraging the reach and trusted relationships of community pharmacies. These efforts are deeply aligned with our purpose and we will continue to work to address the systemic barriers that.
Within the health care ecosystem reduce the disparities that disproportionately impactful mobile communities and empower more equitable health outcomes for patients.
Driven by our purpose powered by our team members and fueled by the strength and resilience of our business. We continue to deliver value for all our stakeholders leveraging our foundation in distribution and our portfolio of complementary pharmaceutical centric solutions, we create differentiated value for our.
Customers and partners as a key connector at the center of the health care system.
As we look forward to the remainder of the fiscal year I continue to be inspired by the thoughtfulness and tenacity of our team members around the world. We live our purpose. Each day now I will turn the call over to Jim for a more in depth review of our second quarter results and our updated.
<unk> Jim.
Thanks, Steve Good morning, and good afternoon, everyone and our second quarter Amerisourcebergen delivered strong financial performance as our business has continued executing and delivering a differentiated value proposition to our customers and partners.
Operationally, we are focused on increasing efficiency throughout the organization, while continuing to prioritize growth and ensuring that we are innovating to support the needs of our customers across our business.
Additionally, we continue to be focused on making thoughtful and strategic investments to power. Our long term growth supported by our strong balance sheet and free cash flow generation.
Before I turn to our second quarter results as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated.
For a detailed discussion of our GAAP results. Please refer to our earnings press release.
Turning now to our second quarter results Amerisourcebergen finished the quarter with adjusted diluted EPS of $3 50 and.
An increase of nearly 9% over the prior year quarter. This solid growth was driven by strong performance in our U S health care solutions segment, which more than offset the gross profit headwind from lapping the peak of COVID-19 therapy contributions in the prior year.
Good operating performance in our international Health care solutions segment, which helped to offset some of the foreign exchange rate pressure.
And a lower share count due to our opportunistic share repurchases during the past year.
Our consolidated revenue was $63 $5 billion up 10% driven by growth in our U S Health care solutions segment, and offset by a slight decline in our international Health care solutions segment, which was negatively impacted by foreign exchange rates and the divestiture of pro forma.
Specialty in June 2022.
On a constant currency basis consolidated revenue grew 11% Consol.
Consolidated gross profit was $2 $4 billion up 6% due to growth in both segments consolidate.
Consolidated gross profit margin was 371% a decline of 13 basis points due primarily to lower COVID-19 treatment contributions and mix in the quarter.
Consolidated operating expenses were $1 4 billion up 9% due to higher distribution selling and administrative expenses.
As expected our year over year operating expense growth rate slowed sequentially from the first quarter.
As we have called out previously in the second half we will lap the inflationary pressures that began in the prior year March quarter.
You'll see operating expense growth slow significantly, particularly in the fourth quarter due in part to incremental expense management actions taken which put us on track to have a more normal growth rate in the mid single digit percent range for the full year.
We continue to focus on leveraging our existing capabilities and scale to create efficiencies. While also investing in our talent and growth initiatives to drive long term sustainable growth and value creation for all our stakeholders.
Consolidated operating income was $932 million an increase.
Greece of approximately 2% compared to the prior year quarter or up 4% on a constant currency basis. Our operating income growth was driven by solid performance in the U S Health care solutions segment, which offset currency related pressures in the international Health care solutions segment I.
I will discuss more detailed segment level business drivers when revealing segment level results.
Moving now to our net interest expense for the second quarter net interest expense was $64 million, an increase of 21%, which was anticipated and we indicated would occur on our February earnings call.
For the remainder of the year, we would expect quarterly net interest expense to be similar to this quarter.
Turning now to income taxes, our effective income tax rate was 19% compared to 21% in the prior year quarter.
We expect our effective income tax rate to be towards the lower end of our range of 20% to 21% for the fiscal year with higher tax rates in the next two quarters.
Turning to diluted share count or diluted share count was $204 3 million shares at three 6% decrease compared to the second quarter of fiscal 2022, driven by share repurchases. We completed over the last 12 months rigs.
Regarding our cash balance and free cash flow, we ended the quarter with approximately $1 $5 billion of cash in the quarter, we repaid the remaining $675 million of short term debt related to the alliance healthcare acquisition fulfilling our commitment to the ratings age.
<unk> paid down two thirds of the acquisition debt within two years of closing the acquisition.
For the first six months of the fiscal year adjusted free cash flow was $1 $1 billion and we remain on track to achieve our adjusted free cash flow guidance of approximately $2 billion for the fiscal year.
This completes the review of our consolidated results now I will turn to our segment results for the second quarter.
U S health care solutions segment revenue was $56 $7 billion up approximately 11% for the quarter with broad based growth across our customer base, including sales to our largest customers and sales of specialty products to physician practices and health systems.
This growth was moderated by a decline in sales of COVID-19 treatments versus the prior year quarter.
U S health care solutions segment operating income increased by three 6% to $756 million driven by growth in specialty and across our distribution businesses as utilization trends continued to be strong.
Additionally, in the quarter, we had good results in our animal health business, which is in line with the normalization that we foreshadowed on our February earnings call.
As a reminder, the U S health care solutions segment is lapping the March 2022 peak quarter for COVID-19 treatment contributions.
Taking a step back if you look at the segment year to date for the six months ended in March U S segment operating income was up five 6% for the first half of 2023 versus the first half of 2022, if you exclude COVID-19 treatment contributions from both periods.
I will now turn to our international Health care solutions segment in the quarter International Health care solutions revenue was $6.8 billion down 0.2% on a reported basis were up 12% on a constant currency basis.
As reported decline reflects the divestiture of pro forma specialty.
Unfavorable foreign exchange rates compared to the prior year quarter.
International Health care solutions operating income was $176 million down approximately 6% on a reported basis driven by a decline at alliance healthcare due to the effect of foreign currency exchange rates as well as the June 2022 divestiture of pro pharma specialty which.
3% of segment level operating income in the prior year quarter.
The decline was offset in part by strong growth at World Courier and the contribution from <unk> in the quarter.
In the quarter World Courier continues to perform well as the business saw good trends and demand for an international shipments.
On a constant currency basis, the international Health care solutions segment delivered 7% operating income growth.
That completes the review of our segment level results I will now discuss our updated fiscal 2023 guidance expectations.
As a reminder, we do not provide forward looking guidance on a GAAP basis. So the following metrics are provided on an adjusted non-GAAP basis I will also provide certain guidance metrics on a constant currency basis.
Full details of our fiscal 2023 guidance can be found on pages eight and nine of our earnings presentation on our Investor Relations website.
Starting with revenue we are raising our consolidated revenue guidance to a range of 6% to 8% growth to reflect the strong revenue growth. We saw in the first half of the year in the U S Health care solutions segment, and favorable currency movements and the international Health care solutions segment relative to our prior.
Guidance.
We now expect revenue growth in the U S health care solutions segment to be approximately 7% to 8% or towards the higher end of our previous range of 6% to 8% growth.
In the International Health Care solutions segment, we are raising our as reported revenue guidance to a range of a 3% decline to flat.
Up from our previous expectation of 1% to 5% decline.
Moving to operating income we are raising our consolidated operating income guidance to a range of 2% to 4% growth from the previous range of zero to 3% growth to reflect the strong core performance in the U S Health care solutions segment.
In the second quarter COVID-19 treatments contributed 11 <unk> to our consolidated EPS with about <unk> in the U S and <unk> in the international segment.
Covid treatment contributions in the quarter were slightly higher than our expectations, bringing our total contribution to <unk> 23 for the first half of the year and we now expect the contribution from COVID-19 treatment distribution for the full fiscal year to be around 30.
Compared to our previous expectation of 25% to 30.
We expect the small remaining contribution to be in the U S segment.
On an as reported basis, we are raising our U S segment operating income growth to be in the range of 3% to 5% up from our prior range of 1% to 4% to reflect the continued strength and execution of our core business.
Given our expectations for the core U S business, we are increasing our guidance for U S Health care solutions segment operating income growth, excluding COVID-19 to be in the range of 6% to 8% an increase from our previous expectation for growth of 5% to 7%.
This metric reflects the core performance of our U S segment, which represents roughly 80% of our consolidated operating income and it helps provide visibility beyond the diminishing transitory contributions from distributing COVID-19 treatments.
Finally, we now expect weighted average diluted share count to be approximately 205 million shares down from our prior expectation of approximately 206 million shares due to lower than anticipated dilution to date.
As a result of these updates we are raising our full year diluted EPS guidance to a range of $11 70 to $11 90.
Up from our prior range of $11 50 to $11 75 Rep.
Representing growth of 6% to 8% on an as reported basis or 11%, 13%, excluding COVID-19 treatment contributions.
Before I turn to my closing remarks, I would like to provide a brief update on how amerisourcebergen is working to help advance ESG initiatives across our industry.
Recently, we partnered with the International Federation of pharmaceutical wholesalers and <unk> to develop an industry ESG framework and this framework, we leveraged our experience reaching relationships to help support pharmaceutical wholesalers aligning on and advancing key ESG initiatives through this framework.
PW members share best practices on key topics, including environmental stewardship, human capital management and health equity, we look forward to continuing to collaborate with the <unk> to move this important initiative forward.
In closing Amerisourcebergen has a strong track record of execution and performance. We have delivered strong performance in the first half of our fiscal year and our updated fiscal 2023 guidance reflects the continued strength and resilience of our business.
We are well positioned to continue deploying capital internally and externally to advance our business, while being good stewards of shareholder capital I want to thank our purpose driven team members and leaders for their strong execution and commitment to efficiency growth collaboration and innovation to help create.
Stated value for all our stakeholders now I'll turn the call over to the operator to open the line for questions operator.
Thank you if you'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from the key please press star and maintain.
I'm trying to ask your question. Please ensure that your device is unmatched it lately.
Our first question today comes from Lisa Gill with Jpmorgan. Please go ahead.
Okay.
Hi, Thanks, very much good morning, Firstly I wonder if they congratulations on this one oncology.
It's a great deal for Amerisourcebergen, but I wanted to focus my question on an area that we've been writing about it and that's really about the changes in the diabetes and insulin market can you remind us how that changed the price cut on insulin will impact you guys had tried distributor and then how do I think about new drug classes like <unk>.
Substantially more expensive are they creating an opportunity and are you seeing that come through your numbers that we saw that were so strong and the U S distribution component.
Yeah, Hi, Lisa Thanks, Thanks for the question. So let me start off with the insulin pricing so amerisourcebergen.
And our industry will be in the forefront of discussions with manufacturers and stakeholders.
The current fee for service model, obviously is based off.
The less profitable the WAC price and.
Provides transparency for for the industry, including manufacturers and distributors. So as these products change the processing and we understand they've probably been no products that are more high profile that are more important to patient care in terms of the chronic nature of the of the diabetes.
Condition and and.
And with a high list price in the heavily rebated products, we anticipated that there could be changes.
For us we will try preserve our economics, we do have.
The ability to negotiate on the fee for service basis with the manufacturers and I think everyone in the industry recognizes that the requirements and the expectations for distributors are becoming even more profound if you look at.
The drug security and pedigree changes that are coming into place.
High inventory demands are much more difficult environment in terms of interest rates I think our role as an ever been clear I was at Nics last week got and meet with all sorts of customers and we should never take for granted the basic basic financing.
Inventory and shipping functions that we do those are incredibly important to the health of all of our customers and our patients.
The second part of your question was on the on the new class of products.
Sometimes.
<unk> called the <unk> one drugs.
As I noticed the category we're talking about.
I think it's just really important for us to follow the prescription.
We have done that whether it's cell and gene therapies or on specialty oncology drugs of ophthalmology drugs and this category is.
The clause, where trade is mainly retail we well represented in that clause.
Through both mail order customers in and even more specific due to large customers like Walgreens. So we will keep our market share.
Which is very impressive somewhere.
And north of 30% region on these products in.
It's just another example of how innovation in healthcare and new products are going to help drive amerisourcebergen growth in fundamentals. So thanks for the question.
Yeah.
Our next question comes from Analyst Ms. Anderson with Evercore. Please go ahead Elizabeth.
Hi, guys. Thanks, so much just a question I guess my question would be.
Just in terms of as we think about the back half of the year and that's the reason that you guys are currently forecasting that you wouldn't see that typical step.
Step up in utilization and sort of that new growth.
You tend to see as we move into the third and the fourth quarter.
Given your sort of year to date performance. It seems like you guys may be tracking ahead of that so I just wanted to make sure I understood that.
And then secondly can you just talk about sort of any of your early learnings from the farm out less acquisition now that it should have closed and you guys have had it.
Owned it for a few months thank you.
Yeah, Great I will start off and I'll.
Talk about the back half of the year and then I'm sure Steve will want to talk about our positive experience. We've had thus far with the pharma Lex acquisition.
We in our guidance, we're implying strong performance in the back half of the year and as we talked about during the call.
During the prepared remarks, we.
Increased our adjusted operating income guidance in the U S ex COVID-19 from a 5% to 7% growth two 6% to 8% growth for the year and really what's driving the back half is the same sort of things that drove this recent quarter, where we performed very well.
We're seeing.
Strong U S core growth, particularly ex Covid, we're seeing utilization trends they continue to be strong.
We're seeing broad based growth across our customer base, including sales to our largest customers and sales of specialty products to physician practices and health systems. We also saw good results in our animal health business with this most recent quarter and so it's those sorts of things that are driving the continued good performance in the <unk>.
Second half we're also as we said during the prepared remarks.
We're expecting for Opex growth to slow during the second half and we're also expecting some better FX in the second half where it was a headwind in the first half we're expecting it to be a slight tailwind in the second half. So those are some of the things that are driving the good performance.
<unk> and the increase in guidance and with that I'll turn it over to Steve to talk about pharma likes yes. Thank you for the question on formulation that we're very proud of this acquisition I think it really highlights amerisourcebergen our commitment to being in the markets. We serve are global commercialization solutions provider and.
We really I think the leadership on the bulb mouse studies really focus on the integration of this acquisition are doing an outstanding job. Most recently they were a continuation of the planning meetings with both the UK and German teams to incredible markets important markets for that team I think just.
Getting to know Amerisourcebergen getting to know our different offerings getting to understand what World Korea does an extended does for example has been key learnings for the team and we are impressed with the quality of the teams and their positioning within the channels and all very interested in helping them grow and develop the business.
Initially I think organically and in future, perhaps be looking at expansions of both lines of service as well as geographic lines.
To remind the audience that services that pharma they provide all under four main segments development consulting regulatory affairs pharmacovigilance quality management and compliance. These are areas that we think will be critically important to the future of the small and medium companies of course, the larger companies as well but.
As we highlighted in the script, we all focused on providing additional services to that category of customers and that's traditionally way.
We formulate has been highly successful and we expect to only invest in glove behind that.
That theme.
And we just so far so far so good.
Proud of the way that our team has really embraced this acquisition.
I think it's also part of the reason why <unk> is going to be a very good.
Strategic nine change for the company.
We look to the quarters ahead.
Okay.
Our next question.
Uh huh.
Our next question comes from Eric Percher with Nephron Research. Please go ahead.
Thank you I wanted to follow up on the question that rent insulin in GOP ones and my question is a little bit on the give and take.
First on the insulin or any other products.
We see lower prices in front of the.
And Keith cap Sunset.
I know you've had experience with manufacturers and having to renegotiate over the last three or four years of earning a fair fee. So I'd love to hear any <unk>.
Analogs that you can provide on the ability to ensure that you continue to receive similar economics.
And then on the <unk>, our understanding is that a lot of the pharmacies are.
The low or no margin products do you need to give a little there to help the independents in particular as they see increases in volumes in <unk>.
Yes.
Thanks for the question Eric.
We don't really get into individual product economics off I think one of the things that I think has worked for our industry over time is that we really do provide a portfolio of customers. There's no customer that I'm proud of that we are providing one one or two single products too we locked to provide all the products and I think that's also the value proposition we offer.
Manufacturers is the knowledge that we have a whole classes of freight and truly unique to the U S market as you know and probably to me that one of the strongest fundamental drivers of the U S market, having said that our current fee for service as I'll say it provides transparency.
We've.
We have got.
Certain rocks in the Vantiv is a change in economics to negotiate with those manufacturers.
And I think these are some of the manufacturers that we work with literally for decades.
In the first fee for service generation of contracts and I think that I understand that.
Economics need to be strong and solid and we need to offer good returns on bases and so these are respectful discussions with changes in business conditions.
We expect.
Not new to reimbursement changes affecting market crosses and.
Again, we think that overall this is a benefit to patients and at the end of the day. If it's benefiting all constituencies that will benefit amerisourcebergen. So I don't have a tremendous amount of concern on any of these things Jim anything you'd add Steve I would I would just emphasize the point that you were making earlier that.
The value we provide in the supply chain and the services we provide are.
Just highly.
Justifiable.
Thank you.
Thanks, Eric next question please.
Our next question comes from Erin Wright trip Morgan Stanley . Please go ahead.
Great. Thanks for taking my questions here, so on the international side of the business can you speak a little bit more about what youre seeing in terms of underlying demand trends underlying utilization and cross that wholesaling business and then on world current year can you give us an update on fundamental demand to across that customer.
<unk> have you seen any volatility therein.
And where are we at now in terms of integration across our alliance and its ability to work with the higher growth areas such as small carrier. Thanks.
I can start off and maybe Jim can add in some trends I just would say that in Europe .
It's been very resilient, but there's nothing that I would report it as surprising.
<unk>.
Turkey is a big market for alliance and that's got a little bit more economic dependencies based on the economy and inflation, but our core European markets are very.
Very stable I am actually looking forward I'm going next week to visit a bunch of the countries, where the first Tom and very much looking forward to that trip and learning more.
But demand remains solid as you know the winter was better than expected in terms of the energy.
Shortfalls in deficit that were anticipated in all our markets have been performing very well, we continue to engage with regulators.
For example in France, we're looking at.
How do we help with the switch to doing more specialty pharmacies in the community setting those are the sort of initiatives that really get us excited how to do more.
At the retail setting and how do we even service some of the hospitals savings.
Through changes in manufacturer contracting et cetera, looking at our logo business.
Those are key initiatives for Us World Korea has just.
It's just a tremendously high performing asset we continue to I think lift the bar on innovation literally I would say.
I've tried to be fairly modest and but I am incredibly proud of the work that.
Our company is doing well Korea is just foremost amongst that.
No.
Every time I get on the phone with them on the selling price with the dedication and professionalism the innovation mindset and this was truly the best of an acquisition that.
We have completed this we took a very good private company that was well resource in a way that had a great footprint and we've just made it I think so much better professionalized management really invested in our systems.
This is a sort of thesis that drove or so I'd say our launch investments. So we are tremendously proud of.
The World Korea and of course, that's been part of Amerisourcebergen for 11 years now Jim anything you'd add on crossing trains I'm sure I'll, just say that we had very good operational performance internationally during the quarter.
Revenue was down to 0.2% on an as reported basis, but up 11, 9% on a constant currency basis and operating income was down five 9% on an as reported basis, but up seven 3% on a on a constant currency basis. Please keep in mind that in this quarter last year, we had pro.
Pharma specialty in the numbers also which has since been divested which contributed 3% of the segment operating income last year as Steve said one of the key drivers. This quarter was performance of World Courier, and we arent seeing as Steve was saying like it's good.
Workings in synergies between World Courier, and our logo at alliance and now pharma Lex is getting involved with that and so there's good opportunities there and we're also from an administrative standpoint seeing good shared services opportunities between the business and of course as we've called out before some very good.
Synergies between the businesses as we become a more global company. So thank you for the question.
Okay.
Our next question comes from Charles <unk> with TV Cohen.
Please go ahead.
Yes, thanks for taking the questions.
Just wanted to follow up on <unk> real quick.
You just talked about.
<unk>.
Opportunities to work with small and medium biotech companies.
It's been obviously a lot of discussions regarding sort of the biotech funding window.
Any comments on what Youre seeing in the market right now and what kind of feedback you're receiving from your clients as it relates to this and then just a follow up on one oncology you mentioned before.
Potential for value based contracting can you go into that a little bit more is that something where.
Your youre looking to take risks.
Certain situations, how would that look at that.
Yeah, Let me quickly do the one oncology question first.
Because.
I appreciate getting that opportunity look we are not first of all they will be an independent business entity. A point is that we have a lot of experience, particularly through our island network, while managing analytics and helping aggregate data on behalf of members.
One oncology really will take a step further then we saying that the future the professional and.
Clinical requirements to be.
In the community and to be serving cancer patients is only going to be increased the ball is going to be lifted so.
Investing in this new model, we think can benefit of course, one oncology and the two the two partners.
TPG Amerisourcebergen, but also the physicians you run the business many of whom we have known for over two decades. These are very successful professional and business people and we want to help use that expertise to deepen our relationships with community oncologists. So if you think about Amerisourcebergen rock now we have the distribution business.
We have the island business in and potentially this is a third way for us to be involved and participated in the market.
So.
I would say that on the biotech and the funding you know it.
Our business gets really impacted by long term trends.
I am convinced that I think everyone in the life Sciences business should be that they are incredible investment theses that makes sense for <unk>.
Venture capital and all other forms of capital to invest behind we only getting smarter I think areas like.
Check GPT argon enhance.
Artificial intelligence are really going to enhance the drug discovery process. It's got enhanced ability to share information I think they are trends of cooperation between a lot of the countries that amerisourcebergen serves that could help also facilitate launching of drugs and.
I just think it's a tremendous time to be in this industry and we've talked a lot on this call about the GOP one class of drugs I mean could be incredibly promising I of course, we all know some good stories about people who've been pre diabetic and <unk> and have been literally Clint.
Clinical pathway has been altered by this so.
Tremendously excited to be a part of this and I think amerisourcebergen is really of the scale sophistication and knowledge base that we can help truly make a difference in patients' lives, which is part of our purpose.
Jim anything you'd add I think that covers it Steve thanks, Yeah and.
And just one thing if we look at.
At Amerisourcebergen a lot of the work we do even at comedies that formulate really doesn't start in phase one and two it's Fortunately we more in the phase III solid. So I think that's just another point they've been it's been a wanted me to make.
Got to give the investor got some credits here.
Next question please.
Our next question comes from Michael Cherny with Bank of America. Please go ahead.
Okay.
Good morning, Thanks for taking the question.
Jim or Steve in the press release, you noted how some of the strength in the quarter from the two largest customers I guess, maybe juxtapose that can you give us an update on what youre seeing on the smaller customer side, where youre independence are focused with you and at this point in time, given macro worries. If there are any other service.
Is that you've either started to provide or other opportunities, where you can help and support them as they work.
Work to sustain and manage their businesses.
Oh God.
Yeah.
I would say kind of a key.
Key thing about the quarter and is just how broad based.
The results were particularly in the U S business and we called out.
Sales to largest customers and we provide details on that in the Q and we did see our two largest customers have quite good growth in sales. We also called out as we frequently do increase in sales of <unk>.
Specialty products to both physician practices and health systems, but just those are just two of the things that we called out I think probably the kind of the key thing on this quarter in the US Is is just how broad based it was and that would include strong performance and independent excuse me independent farm.
<unk> also and then as I said earlier.
Good quarter in the animal health business and I think Steve has a couple of things he wants to follow up on that yeah. I mean, it's the community pharmacists, it's quite incredible how well they.
They hold up and I think in a way.
Sure in the initial days of Covid I think there was a trend towards people.
And Mayo heavy more market share, but this marketplace really supports all sorts of pharmacy solutions.
Definitely.
I think the role of the vaccinations in the pharmacies as being a good example of our pharmacists practicing at the top of this scale and we continue to see our pharmacy customers.
Gain inroads and preserve their market share and.
In fact, I think most of our payer customers. When we look at our elevate network recognize that they have an important role to play.
We try to get as we pointed out in the script, our community pharmacists to play even a role and looking for.
Clinical trial participants patients that could participate particularly in.
Disaffected communities the communities that don't often participate in trials so.
It's just an exciting time to do this kind of work its an exciting time for our customers. We have our trade show coming up over the summer and I know that that engaging with those folks or is it just makes us excited about how they're looking at their patients their communities and what that could do to serve osawa.
I'd say, our oncology business, which is comprised largely of independent oncology practices continues to thrive and I think.
Will only be strengthened by the continued commitment that we show to the sector.
<unk>.
I think thats the message to our customers on on while we were investing in one oncology is one of the leading basis. Thank you.
Our next question.
Our next question comes from Steven Valiquette with Barclays. Please go ahead Steven.
Thanks, Good morning, everybody. So I also have a just a couple of questions here on one oncology I guess first just to confirm a couple of things on the structure I guess, it's not clear will the new JV with.
TPG consolidate the total practice revenues generated from the 900 affiliated providers, whereas the revenue the JV more derived from some sort of advisor fees or just some some cut of the <unk>.
Practice right I, just wanted to get a sense for how much of a true ownership there is a the affiliated providers.
And then question two just thinking about the synergy potential it wasn't clear is ABC currently the primary drug distributor to the majority of the roughly 900 affiliated practices, where do your competitors have a large or a material share of that distribution that under your ownership you could theoretically shift to yourselves just want to get a sense for that too.
Yeah, one oncology as is.
It's technically an msos, so that get management fees.
And then they also some benefits of centralization that have focused on leading practices across several geographies.
Geographies.
And oncology supply has been the lead distributor.
We're almost all the practices that it's possible that some of the practices may not be fully integrated and using one of our competitors but.
As you know if you exclude one oncology amerisourcebergen share of community oncology is pretty high so.
We would anticipate that as they bring new practices isn't that we would benefit from that but no. We are we are the primary distributor.
2221 oncology.
Jim has something yes, Steve I'll just.
Follow up and the deal is structured as a joint venture and we do not own the practices nor consolidate the revenue as Steve was saying and of course, it's a JV between Amerisourcebergen TPG and one oncology affiliated practices and physicians and upon closing.
The deal we would expect to have an initial ownership stake of approximately 35% in the joint venture with TPG and the one oncology practices and physicians owning the remaining 65% and we currently intend to account for the investment after closing under the equity method.
Accounting and our share of the joint ventures income or loss would be recorded in other income and included on our adjusted operating results.
Thank you next question please.
Our next question comes from Danielle Great site with Citi. Please go ahead.
Hi, Thanks for taking the question I'm sure, we'll get more details in the queue on us, but apart from the expected normalization what drove animal health strength this quarter and how is companion versus production trending.
Yes, it was a good quarter for the animal health business and we signaled a three three months ago during our earnings call, but that's what we expected.
Normalization of.
The business and.
There was 6% revenue growth and it was a good revenue growth in both camps.
Companion animal and production animal during the quarter, we feel there probably are still some staffing pressures.
Vet clinics Wang on visits, but we felt good about the 6% growth and it was comparable growth rates in both companion animal and production animal and I think importantly, we saw solid trends exiting March.
Thank you I will now take the final question. Please.
Thank you. Our next question comes from George Hill with Deutsche Bank. Please go ahead George.
Okay.
Hey, good morning, guys and thanks for sneaking me in just a quick one on 340 B theres been a lot of manufacturer pullback in the 340 <unk> space I'm wondering if you guys have seen that impact either yourselves directly through your relationships with health system providers or even though you called out the strength in your largest customers kind of any impact on your largest customers and Jim I thought maybe you can.
Just remind us kind of what percentage of the core drug business is exposed to kind of doctors and health system providers as opposed to to pharmacies and other what we would consider a regular way retail locations.
Okay.
We don't really comment on it I mean, obviously the general trend is at $3 40 beads growing amerisourcebergen is growing at all health systems business.
Important customer segment for us.
Think a couple of years ago, we were lagging a bit in market share.
We've really been able to enhance the theme in the health system segment of growing with market leaders we have.
I think a good relationships with the hospital GPO and with other key providers.
Continue to participate with Mike Simpson and Rfps, probably this is a sector, where there's more rfps because of the contractual relationships and a lot of the hospitals on the 502.
447 $800 million range.
Your volume, which wouldn't be big enough for us to comment on an individual basis, but theres pretty.
Every few months, we puts us probably in a large hospital with it makes sense for us to participate I would say on 340 B, we follow the market.
Obviously some of this.
Historically had hurt some of our part D business as it went into health systems I think we've been very effective at servicing.
Both classes of trade and and being objective providers I think often.
This channel the thoughts of channel conflict can largely be dismissed and.
Objectively by Bob being a payer provider and.
And really being transparent about what your different strategies on so we don't really over focus on this and just just follow that prescription.
I think that that's been the best strategy for Us George.
So I see we're a little bit past <unk>. So I just wanted to say how proud.
Jim and Ben and I were to record this quarter.
Tremendously strong second quarter for AB.
I think really enhances the theme of us.
Making the right sort of capital deployment.
Our acquisitions that we've made recently continues to track very well and I think it adds hopefully to our reputation of solid execution and building on our strengths. We are excited to have one oncology.
Join our family of companies in a way.
Through the investments that we've made and.
Just in summary, I would say that amerisourcebergen as a purpose driven company and future years in Cora is very well positioned for long term growth and will offer our shareholders a differentiator too. Thank you very much.
Yeah.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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